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Financial Innovation Essay

1777 words - 8 pages

What is Financial Innovation?
Financial innovation can be defined as the act of creating and then popularizing new financial instruments as well as new financial technologies, institutions and markets. It includes institutional, product and process innovation.
Why do we need financial Innovation?
Finance is the lifeblood of the world economy that affects every other sector and in turn is affected by every other sector. A Simple Financial Innovation like a debit card can lift millions of people out of poverty and connect them to the global economy. It helps entrepreneurs raise money for the next idea. In the coming few pages I shall attempt to discuss few financial innovation and how ...view middle of the document...

Grameen Bank
The origin of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus, Head of the Rural Economics Program at the University of Chittagong, launched an action research project to examine the possibility of designing a system to provide banking services targeted at the rural poor. The Grameen Bank Project (Grameen means “rural” or “village” in Bangla language) came into operation with the following objectives:
1. Extend banking facilities to poor men and women;
2. Eliminate the exploitation of the poor by money lenders;
3. Create opportunities for self-employment for the vast multitude of unemployed people in rural Bangladesh;
4. Bring the disadvantaged, mostly the women from the poorest households, within the fold of an organizational format which they can understand and manage by themselves;
5. Reverse the age-old vicious circle of “low income, low saving & low investment”, into virtuous circle of “low income, injection of credit, investment, more income, more savings, more investment, more income”.

The action research demonstrated its strength in Jobra (a village adjacent to Chittagong University) and some of the neighboring villages during 1976-1979. With the sponsorship of the central bank of the country and support of the nationalized commercial banks, the project was extended to Tangail district (a district north of Dhaka, the capital city of Bangladesh) in 1979. With the success in Tangail, the project was extended to several other districts in the country. In October 1983, the Grameen Bank Project was transformed into an independent bank by government legislation. Today Grameen Bank is owned by the rural poor whom it serves. Borrowers of the Bank own 90% of its shares, while the remaining 10% is owned by the government.
Muhammad Yunus earned a doctorate in economics from Vanderbilt University in the United States. He was inspired during the Bangladesh famine of 1974 to make a small loan of US$27 to a group of 42 families as start-up money so that they could make items for sale, without the burdens of high interest under predatory lending. Yunus believed that making such loans available to a larger population could stimulate businesses and reduce the widespread rural poverty in Bangladesh.

Yunus developed the principles of the Grameen Bank (literally, “Bank of the Villages” in Bengali) from his research and experience. He began to expand microcredit as a research project together with the Rural Economics Project at Bangladesh’s University of Chittagong to test his method for providing credit and banking services to the rural poor. In 1976, the village of Jobra and other villages near the University of Chittagong became the first areas eligible for service from Grameen Bank. Proving successful, the Bank project, with support from Bangladesh Bank, was extended in 1979 to the Tangail District (to the north of the capital, Dhaka). The bank’s success continued and...

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